Thursday, December 8, 2022
HomeValue InvestingNew Activist Strain, Pursuing a Sale

New Activist Strain, Pursuing a Sale


This shall be a short publish and never essentially the most thrilling concept given the present chaotic market backdrop, however I needed to toss something on the market because it has been some time since hitting publish. I’ve largely simply been sitting tight, ready for occasions to play out and including to some present positions throughout this downturn.  I additionally haven’t got a lot expertise with insurance coverage corporations so be simple on me within the remark part.  

Argo Group Worldwide (ARGO) is a specialty insurer (~$1.5B market cap) that first popped up on my radar display in 2019 when it confronted a proxy contest from Voce Capital, their largest shareholder (9-10%), which finally added three representatives to the board.  Voce put out an entertaining deck that outlined the now ex-CEO’s lavish way of life (company penthouses, artwork assortment, crusing sponsorships, non-public jets, and so forth.) that was primarily being expensed via Argo.  

Within the ~2 years since Voce refreshed the board and the ex-CEO resigned, Argo has gone about shedding unprofitable or risky enterprise traces to focus on the sturdy U.S. targeted specialty insurance coverage enterprise. 

The crown jewel is their extra and surplus enterprise line that focuses on dangers that customary insurance coverage markets are unwilling or unable to underwrite.  This the non-commoditized, much less regulated nook of the insurance coverage market and thus must be extra worthwhile.  The transformation objective has been to uncover and spotlight this enterprise: 

Nonetheless, the perceived gradual velocity of the transition and a shock reserve adjustment in February introduced ahead one other activist pushing for board illustration in Capital Returns Administration, an insurance coverage targeted hedge fund.  Capital Returns has additionally insisted the corporate put itself up for a sale and the board agreed final week to run a strategic options course of which incorporates exploring a sale of the corporate.  Whereas, Capital Returns argues the board does not have pores and skin within the sport (in combination they personal ~1% of the corporate), there are three Voce representatives on the board and so they’ve moved the enterprise down Voce’s urged path.  My guess is Voce is in settlement that now is an effective time to pursue a sale and the board is unlikely to withstand an inexpensive provide.  Briefly, this will likely go from semi-hostile to pleasant, the verbiage from the current earnings name appears to suggest that as effectively:

Thomas A. Bradley Argo Group Worldwide Holdings, Ltd. – Chairman of the Board & Appearing CEO

Thanks, Greg, and thanks to everyone for becoming a member of us in the present day. Earlier than I leap into our outcomes for the quarter, I would wish to take a second to debate our announcement final week. Over the past yr, Argo has instituted various substantive strategic initiatives, actions that we imagine have positioned the corporate for a transparent and constant long-term path to steady development and profitability. The Board of Administrators and administration staff, nevertheless, don’t imagine these initiatives are adequately mirrored within the firm’s present market valuation.

After a lot considerate and deliberate dialogue and evaluation, our Board with the help of our advisers has initiated an exploration of potential strategic options. On this evaluate course of, our goal is straightforward: to maximise the worth of the corporate’s technique and its appreciable long-term prospects for the advantage of all shareholders. To that finish, the Board will think about a variety of choices for the corporate, together with, amongst different issues, a possible sale, merger or different strategic transaction.

What can be an inexpensive valuation in a sale?  Once more, I’ve solely seemed severely at 1-2 insurance coverage corporations right here within the final decade.  However beneath is an inventory of U.S. based mostly friends that I took from Capital Returns’ proxy, and the info is from TIKR.

That is admittedly rudimentary, however for a enterprise that is proforma mixed ratio must be within the low 90s, a 1.5x e-book valuation appears cheap for a strategic purchaser?  Kinsale Capital (KNSL) is a pure play extra and surplus insurer which trades for a excessive valuation, there’s a KNSL quick thesis on VIC price studying, giving a little bit little bit of consolation that different gamers shall be fascinated with ARGO and that it ought to commerce at an inexpensive premium to e-book.

The sale course of may take a while, perhaps we hear one thing in 5-7 months, so once more, there are seemingly extra instant/actionable alternatives within the present market dislocation, however preserve this one on the watchlist.

Disclosure: I personal shares of ARGO

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